- 31 - “investments” promoted by Little, Fritts, and Rowe were in reality scams, and petitioners never recovered their money. The “cash for title” loan program investment was in reality a large- scale, international Ponzi scheme. Little, Fritts, and Rowe represented to petitioners that the investment would provide high-interest consumer loans. Contrary to those representations, most of the proceeds were used to pay interest and principal to earlier investors, as well as commissions and fees to the promoters. Petitioners did not make a profit on the investments. Rather, they lost most of the money they invested. The weight of authority holds that certain distributions to taxpayers in Ponzi or pyramid schemes (where proceeds of later investors are used to pay distributions to early investors, lending an appearance of legitimacy to a fraudulent “investment”) are current income. Parrish v. Commissioner, T.C. Memo. 1997-474, affd. 168 F.3d 1098 (8th Cir. 1999); Premji v. Commissioner, T.C. Memo. 1996-304, affd. without published opinion 139 F.3d 912 (10th Cir. 1998); Wright v. Commissioner, T.C. Memo. 1989-557, affd. without published opinion 931 F.2d 61 (9th Cir. 1991); Murphy v. Commissioner, T.C. Memo. 1980-218, affd. per curiam 661 F.2d 299 (4th Cir. 1981); Harris v. United States, 431 F. Supp. 1173 (E.D. Va. 1977). In all but one of the above cases, however, the taxpayers were early investors who hadPage: Previous 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 Next
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